San Gold Corporation (SGRCF) is engaged in the exploration, development, and production of gold properties in Canada.

Number of shares

373,390,981

Number of options

20,366,668

Number of warrants

16,800,000

Fully diluted number of shares

410,557,649

Share price

$0.13

Market cap

$48.5 million

Enterprise value

$92.8 million

P/S

0.54

P/B

0.39

Ticker

SGRCF,TSX:SGR

1.1 History

San Gold Corporation was formed in 2005 by the amalgamation of San Gold Resources Corporation of Bissett and Gold City Industries of Vancouver, B.C. Since 2005, San Gold has produced over 350,000 ounces of gold from the Rice Lake mining complex.

1.2 Business Model

The primary product produced by the company is gold. Since commencing commercial production of gold, San Gold has received revenue from the North American gold bullion markets.

1.3 The Mines

San Gold's Rice Lake mining complex is located 250 km northeast of Winnipeg, Manitoba adjacent to the town of Bissett.

(Source: San Gold)

The company produces gold from the Rice Lake mine, the Hinge mine and the 007 mine each of which forms part of the Rice Lake mining complex.

The Rice Lake mining complex has produced 75,000 to 85,000 gold ounces annually during the past three years.

(Source: Investor presentation)

San Gold’s global gold resources are 3.4 million ounces with a relatively high grade.

(Source: Investor presentation)

2 Management

The CEO Greg Gibson has more than 30 years of mining industry experience in Canada, the USA and Australia. Greg Gibson has been CEO since June 2014. Collectively, San Gold’s management team has over 80 years of mining experience.

Gold production in the first quarter of 2014 was 30% lower than gold production in the same period of 2013.

(Source: Earnings release)

4.2 Historical Developments

Here is a table of San Gold’s revenue and earnings since 2006.

Year

2006

2007

2008

2009

2010

2011

2012

2013

Revenue (C$ millions)

0.8

4.4

8.7

27.8

58.0

114.1

142.1

106.3

Net income/loss (C$ millions)

-18.4

-29.9

-33.4

-29.5

-24.6

-5.1

-13.2

-111.3

EPS

-0.16

-0.19

-0.15

-0.12

-0.09

-0.02

-0.04

-0.32

San Gold reported C$83.1 million of impairment charges in 2013.

5 Shares

Here is a table of San Gold’s number of shares since 2006.

Year

2006

2007

2008

2009

2010

2011

2012

2013

Number of shares (millions)

117.7

160.9

220.5

251.6

284.7

309.1

324.9

346.6

San Gold’s number of shares have grown 194% since 2006, but the gold production has grown 7,500%.

6 Outlook

San Gold’s near-term goal is to achieve profitability by focusing on most profitable ounces.

(Source: Investor presentation)

On July 21 San Gold and Kerr Mines (TSX:KER) announced that they had entered into a non-binding letter of intent to merge their businesses. Kerr Mines’ high grade Copperstone mine will be similar in size to the Rice Lake mine.

7 Risks

The two main risks are negative earnings and the gold price. San Gold has reported negative earnings since inception. San Gold’s total cash costs were C$1,226 per ounce in the first quarter. San Gold is also a penny stock.

8 Conclusion

San Gold is currently trading at a P/B ratio of 0.39. I believe the stock could have at least 100% upside potential during the next 12 months.

(Source: Investor presentation)

Disclosure: The author is long TSX:SGR

About the author:

maarnio

I have 15 years of investing experience. I have traded stocks, commodities and Forex markets.

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